Business Overview

Eastern Bankshares Inc (EBC) is a leading regional bank in the Northeast United States, serving communities across Massachusetts and New Hampshire. The company has a rich history dating back to 1818, when it was founded as a savings bank in Boston, Massachusetts. Over the past two centuries, Eastern has evolved into a diversified financial institution, offering a comprehensive suite of banking, wealth management, and investment services to retail and commercial customers.

In 2024, Eastern embarked on a significant strategic move, completing its merger with Cambridge Bancorp, the parent company of Cambridge Trust Company. This transformative combination solidified Eastern's position as the largest commercial bank headquartered in Greater Boston and a premier financial institution in the New England region. The merger allowed Eastern to enhance its product and service offerings, bolster its wealth management capabilities, and deepen its commitment to the communities it serves.

Historical Background

Eastern Bankshares has a long history of serving the banking needs of customers since its founding in 1818. The company operated as a mutual savings bank for over two centuries until 2020 when it converted to a stock bank holding company structure and became a publicly traded company. This conversion marked a significant milestone in Eastern's history, allowing it to access capital markets and pursue growth opportunities more effectively.

In 2022, Eastern continued its strategic growth through acquisitions by acquiring Century Bank, a $6 billion bank headquartered in Medford, Massachusetts. This acquisition expanded Eastern's footprint and customer base in the Greater Boston area, further strengthening its market position.

The year 2023 presented significant challenges for Eastern Bankshares as the COVID-19 pandemic disrupted the economy. In response to bank failures in the first quarter of 2023, the company demonstrated its resilience by bolstering its on-balance sheet liquidity. This proactive approach allowed Eastern to navigate the uncertain economic environment and continue serving its customers effectively.

Throughout its history, Eastern Bankshares has maintained a strong focus on serving the banking and wealth management needs of retail, commercial, and small business customers in its primary market of eastern Massachusetts and southern New Hampshire. The company's commitment to its local communities has been consistently recognized, with Eastern ranking as a top SBA lender in Massachusetts for 16 consecutive years.

Financial Overview

As of the end of the third quarter of 2024, Eastern Bankshares reported total assets of $25.5 billion, a substantial increase from the $21.1 billion in assets reported at the end of 2023. This growth was primarily driven by the integration of Cambridge Trust's $5.3 billion in assets, which were added to Eastern's balance sheet upon the completion of the merger in July 2024.

The company's loan portfolio experienced robust growth, expanding by 29% year-over-year to $18.1 billion as of September 30, 2024. This was largely attributable to the addition of $3.9 billion in loans from the Cambridge Trust merger, as well as continued organic growth in Eastern's commercial and consumer lending divisions.

On the deposit front, Eastern reported $21.2 billion in total deposits as of the end of the third quarter, a 20.6% increase from the $17.6 billion in deposits recorded at the end of 2023. The growth in deposits was primarily driven by the $3.9 billion in deposits acquired from Cambridge Trust, as well as continued organic growth in Eastern's core deposit franchise.

Despite the significant balance sheet expansion, Eastern maintained a strong capital position, with a Common Equity Tier 1 (CET1) ratio of 15.5% as of September 30, 2024. This well-capitalized stance provides the company with ample flexibility to support future growth initiatives and navigate potential economic headwinds.

For the third quarter of 2024, Eastern Bankshares reported revenue of $216,542,000 and net income of $60,771,000. The company's operating cash flow for the quarter stood at $88,719,000, while free cash flow amounted to $83,421,000. These figures demonstrate the company's ability to generate strong financial results despite the ongoing integration process and challenging economic environment.

Eastern Bankshares operates across several key business segments, including Commercial Lending, Business Banking, Residential Lending, and Consumer Lending. The Commercial Lending segment, which includes commercial and industrial (C&I) loans, commercial real estate (CRE) loans, and commercial construction loans, represented a significant portion of the company's loan portfolio. As of September 30, 2024, C&I loans totaled $3.31 billion (18.6% of total loans), CRE loans amounted to $7.09 billion (40.4% of total loans), and commercial construction loans stood at $509.9 million (2.9% of total loans).

The Business Banking segment, which focuses on small businesses and small investment real estate projects, had a loan portfolio of $1.31 billion, representing 7.4% of total loans. The Residential Lending segment, consisting of mortgage loans on 1-4 family residential dwellings, amounted to $3.94 billion or 22.2% of total loans. The Consumer Lending segment, including home equity loans and lines of credit, as well as other consumer loans, totaled $1.59 billion or 9.2% of the loan book.

Eastern Bankshares has maintained solid asset quality metrics across its lending segments, with non-accrual loans at 0.70% of total loans and an allowance for loan losses representing 1.43% of the loan portfolio as of September 30, 2024. The company's net interest margin improved to 2.97% for the third quarter of 2024, up from 2.77% in the prior-year period, driven by growth in the loan portfolio and higher yielding assets.

In addition to its lending activities, Eastern Bankshares generates noninterest income from trust and investment advisory fees, service charges on deposit accounts, debit card processing fees, and other banking-related services. For the nine months ended September 30, 2024, noninterest income totaled $86.6 million, up significantly from $264.5 million in the same period of 2023, primarily due to lower losses on sales of securities.

Operational Highlights and Merger Integration

The successful integration of Cambridge Trust has been a key priority for Eastern Bankshares over the past two quarters. The company has worked diligently to ensure a seamless transition for customers, employees, and stakeholders, leveraging the strengths of both organizations to create a more robust and capable financial institution.

One of the notable achievements during this integration process was the retention of key talent from the Cambridge Trust team. Eastern was able to retain over 95% of Cambridge's client-facing wealth management and private banking professionals, ensuring continuity of service and preserving the strong client relationships that were the hallmark of Cambridge Trust.

Furthermore, Eastern has been able to capitalize on cross-selling opportunities, leveraging its expanded suite of banking, wealth management, and investment services to provide a comprehensive set of solutions to the combined customer base. This has resulted in a notable increase in trust and investment advisory fees, which more than doubled to $14.9 million in the third quarter of 2024 compared to the prior-year period.

The merger has also generated significant cost synergies, with Eastern realizing $33.1 million in non-recurring merger-related expenses during the first nine months of 2024. These savings have contributed to the company's ability to maintain a strong operating efficiency ratio, which stood at 60.1% in the third quarter, despite the integration-related expenses.

Portfolio Optimization and Capital Allocation

In addition to the successful integration of Cambridge Trust, Eastern Bankshares has been proactive in optimizing its investment portfolio and capital allocation strategies to enhance long-term financial performance.

During the fourth quarter of 2024, the company announced a $1.2 billion investment portfolio repositioning, which involves the sale of low-yielding available-for-sale securities and the subsequent reinvestment of the proceeds at higher market rates. This strategic move is expected to add approximately $0.13 to Eastern's operating earnings per share in 2025, underscoring the company's commitment to driving shareholder value. Additionally, this repositioning is anticipated to add approximately 10 basis points to return on assets (ROA) and 95 basis points to return on tangible common equity.

Furthermore, Eastern has demonstrated a disciplined approach to capital management, repurchasing $28.4 million worth of shares during 2024 and increasing its quarterly dividend by 9% to $0.12 per share. These actions, combined with the company's robust capital position, reflect Eastern's focus on delivering sustainable returns to its shareholders.

Outlook and Challenges

As Eastern Bankshares looks to the future, the company remains cautiously optimistic about the economic environment and its ability to navigate potential headwinds. For the full year 2025, the management team has provided guidance on several key financial metrics:

• Modest balance sheet growth is expected, with anticipated loan growth in the range of 2% to 4% and deposit growth of 1% to 2%.

• Net interest income is projected to be in the range of $815 million to $840 million, with a full-year FTE margin of 3.45% to 3.55%.
• Provision expense is expected to be between $30 million and $40 million.
• Operating non-interest income is anticipated to be between $130 million and $140 million.
• Operating non-interest expense is projected to be in the range of $535 million to $555 million.
• The effective tax rate is expected to be 22% to 23% on an operating basis.

The company's net interest margin is expected to benefit from the investment portfolio repositioning, as well as the continued repricing of its deposit base in response to the Federal Reserve's interest rate actions.

While the company's credit quality metrics have remained relatively stable, with a non-performing loan ratio of 0.76% as of September 30, 2024, the evolving commercial real estate landscape, particularly in the office sector, continues to be a focus area for Eastern's management. The company has taken a proactive approach to managing its exposure to investor office loans, with regular portfolio reviews and timely credit risk management actions.

Conclusion

Eastern Bankshares has demonstrated its ability to execute on strategic initiatives and navigate a dynamic operating environment. The successful integration of Cambridge Trust has expanded the company's geographic footprint, product capabilities, and client base, positioning Eastern as a leading financial institution in the New England region.

Furthermore, Eastern's focus on portfolio optimization and disciplined capital allocation has strengthened its financial profile, enhancing its ability to deliver sustainable growth and shareholder returns. The company reported full-year 2024 operating net income of $192.6 million, which was 18% higher than 2023, with net interest income of $607.6 million increasing 10% from the previous year and a 12 basis point expansion in the net interest margin.

As Eastern Bankshares navigates the evolving economic landscape, its experienced management team, prudent risk management practices, and commitment to its communities position the company for long-term success. With a well-diversified loan portfolio, strong deposit base, and solid capital position, Eastern is well-equipped to capitalize on growth opportunities while maintaining a focus on risk management and operational efficiency.